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TMI Blog2015 (9) TMI 800X X X X Extracts X X X X X X X X Extracts X X X X ..... he Respondent : Shri P Radhakrishnan, JCIT ORDER Per Chandra Poojari, Accountant Member These appeals by the assessee are directed against different orders of the Commissioner of Income-tax(Appeals) dated 28.3.2014 and 21.3.2013 for the assessment years 2006-07 and 2009-10, respectively. 2. First, we take up the appeal in ITA No.1374/Mds/2013: The assessee has raised the following grounds: 1.The Order of the Learned CIT Appeals for the assessment year 2009-10 is erroneous and opposed to Law and the facts and the circumstances of the case. 2. The Learned CIT Appeals erred in not appreciating the purport of the Board's Circular No.11/2008 dated 19.12.2008 wherein it has been clarified that the amendment would apply only in respect of the purpose of advancement of any other objects of general public utility and the entities pursuing the said objects will not be eligible for exemption in respect of any activity in the nature of trade, commerce of business. 3. The Learned CIT Appeals failed to appreciate that, first of all, the Appellant Trust's activities would fall strictly only under the first three limbs of Section 2(15), viz., Relief of the poor, Ed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gone through the receipts and expenses which are reproduced below: Receipts from: i) Income from working womens hostels ₹ 35,68,975/- ii) Income from womens service centres ₹ 53,96,757/- iii) Income from canteen ₹ 26,76,083/- iv) Foreign donations ₹ 50,29,018/- v) All other expenses Rs. . Total ₹ 2,58,44,488/- Expenses towards: i) Expenses of working womens hostels ₹ 21,37,289/- ii) Expenses of womens service centres ₹ 24,40,083/- iii) Expenses of canteen ₹ 27,35,991/- iv) All other expenses Rs. . Total ₹ 3,00,21,451/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the CIT(Appeals) observed that the first two (sl.Nos.1 2) are not activities as such. They are only head office account and foreign contribution accounts. Hence, the remaining eight (i.e. SI. Nos. 3 to 10) are the only activities undertaken by the assessee. 5.2. Out of the said eight activities, the effective and real activities are running of working womens hostels and women service centers and to some extent running of canteen. The remaining five activities are very nominal. Even the expenses shown in these five activities are only establishment expenses like salaries. 5.3. Accordingly, the CIT(Appeals) concluded that the predominant activities are running of (i) working womens hostels, (ii) women service centers and (iii) canteen. These activities, by no stretch of imagination can constitute charitable activities. 5.4. Further, the CIT(Appeals) observed that the running of working womens hostels and womens service centers are independent activities of their own. The assessee is not running an educational institution. Hence these activities of running of working womens hostels, women service centers and canteen will only amount to commercial activities and aimed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and orphaned children and also taking care of their education and health needs. The ld. AR further submitted that the CIT(A) has upheld the order of the AO without considering the assurance given by the Hon'ble Finance Minister on the floor of the House that genuine Trusts will not be affected by the amendment to Section 2(15) and the Board's Circular incorporating the said assurance. The facts of the case have not been properly appreciated by the lower authorities. The assessee society rendered yeomen service in the matter of uplifting the poor and orphaned children, poor women and empowering them by imparting education and training to achieve economic independence. The AO and CIT(A) merely picked up some incidental activities which generated some surplus. Such activities are closely interlinked with main objects of relief of the poor and education and there was no profit motive or intention to run any business or commercial activities. 6.1 In proof of the above, the ld. AR has given below a list of accolades received by the assessee from the Government over the years in appreciation of the services rendered by the society and submitted that the order of the CIT(Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and canteen will not take it outside the purview of charity and hence, that the proviso added to sec.2(15) of the Act, is not at attracted to the case in hand. He also submitted that the statute, as it stood earlier, had clarified the charitable purpose mentioned in sec.2(15) of the Act, had clarified the charitable purpose mentioned in s. 2(15) by the words not involving the carrying on of any activity for profit . By virtue of the existence of these clarifying words, if there was any element of profit it was enough liable to be reckoned as charitable purpose right from the inception of the Act in 1961 till 1st April, 1984, when the words not involving the carrying on of any activity for profit were deleted. Thus the contention is that after 1st April, 1984, there is no allergy to profit and if the profit feeds charity, it stands cleared for exemption under s. 11 of the Act. 8.2. To analyse the scope and object of the amendment, the learned counsel placed reliance on the Budget Speech of the Minister for Finance, which stated as follows (298 ITR (St.) 33, 65 : 'Charitable purpose' includes relief of the poor, education, medical relief and any other object of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities pursued by the assessee as enumerated in earlier para 3 and perusal of that activities carried on by the assessee, cannot be oust the involvement of trade, commerce or business or any service in connection with trade, commerce or business as contemplated under the statute. Further, we note that there is substantial variation in the statutory position as it existed earlier to 1st April, 2009, where the assessee has been given exemption u/s.11 of the Act. and the position available after amendment to sec.2(15) brought into effect from 1st April, 2009. Yet another important aspect to be noted in this context is that, after the amendment by incorporating proviso to s. 2(15), the 4th limb as to the advancement of any other object of general public utility will no longer remain as charitable purpose, if it involves carrying on of : (a) any activity in the nature of trade, commerce or business, (b) any activity of rendering any service in relation to any trade, commerce or business for a cess or a fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity. 8.5. The first limb of exclusion from charita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specific activities of relief of the poor; education or medical relief. The correct way to express the nature of the activities carried on by the assessee is to say that the assessee is carrying on 'advancement of any other object of general public utility'. When that is the case, the assessee is hit by the proviso given under section 2(15). The proviso reads that 'advancement of any other object of general public utility' shall not be a charitable purpose, if it involves carrying on any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business for consideration, irrespective of the application of the money. Therefore, the case of the assessee is hit by proviso to section 2(15) and the assessee is not entitled for the benefit of section 11 for that part of income generated in the hands of the assessee from running its International Guest House and Working Women's Hostel. Alternatively, one has to look into section 11 (4A). Subsection (4A) provides that exemption shall not apply in relation to any income of a trust or an institution, being profits and gains of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee for the assessment year 2009-10 is dismissed. 9. Now, we take up the appeal in ITA No.1373/Mds/2013: In the assessment year 2006-07, the assessee filed its return of income on 30.10.2006 claiming the income of ₹ 1,56,35,700/- as exempt under sec.11 of the Act. There is a short fall in application of income of ₹ 2,02,45,684/-. In the memo of income filed along with the return of income, the assessee stated that it exercised an option u/s.11(2) of the Act. The assessee did not file form 10 along with return of income and not enclosed a copy of the resolution passed by them. The assessment was completed u/s.143(3) of the Act The assessment was taken for scrutiny u/s.143(2) of the Act. During the course of assessment proceedings, the assessee filed revised return on 29.9.2008 admitting gross receipts of ₹ 10,39,40,926/- The assessee filed Form 10 dated 19.9.2008 along with the revised return accumulating an income of ₹ 3,35,36,029/-. In Form 10 the assessee mentioned the purpose/purposes of accumulation of income as follows, and claimed exemption u/s.11(2) of the IT Act.: To carry on the programs in the Integrated Development programme fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritable activities. Accordingly, the CIT(A) directed the AO to withdraw the exemption granted to the assessee u/s.11 of the Act and enhance the assessment. Further, he directed the AO not to grant depreciation on the written down value of the assets carried forward in earlier years, as the assessee has already claimed the cost of fixed assets as application of income while claiming the exempting u/s.11 of the Act. The AO is directed to allow the depreciation only on the assets purchased during the financial year 2005-06 as per the rates applicable. Against this, the assessee is in appeal before us. 13. The ld. AR submitted that the assessee-society was framed on 13.07.1976 and is duly registered with the District Registrar, Chennai. The society was framed with the following objectives: i) To assist people, to initiate, organize, establish and execute developmental programmes aimed at the relief, and development of the poor of all castes and creeds and to create an awareness in them to improve their socio-economic status. ii) To co-operate and co-ordinate with the various departments of State and Central Government, Non- Governmental Agencies, local bodies at various levels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the DIT was received and completed the assessment holding that the assessee was not entitled for exemption u/s 11 of the Act. The assessee filed an appeal against the order of the Assessing Officer before the CIT(A), who dismissed the appeal by order dated 31.12.2009. On further appeal before the Tribunal, vide its order dated 24.03.2010 in ITA No. 253/Mds/10, restored the entire issue to Assessing Officer for fresh adjudication. In the meanwhile the DIT (E) had passed order dated 11.11.2009 condoning the delay in the appellant's filing of Form No.10. 13.2 The Assessing Officer in the course of the fresh assessment held that the purposes for accumulation mentioned by the assessee in Form No.10 was only a repetition of the objects of the trust and were not specific. The assessee filed Form No.10 dated 19.08.2008 along with a revised return on 29.09.2008 showing accumulation to the extent of ₹ 3,35,36,029/-, stating the purpose of accumulation as under: To carry on the programme in the integrated development programme for street children by contacting and counselling, construction of shelter homes, vocational training and running of non-formal education centres for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raries for imparting technical knowledge or scientific knowledge, or knowledge in any subject or language; (iv) to award scholarships or stipends to students to enable them to prosecute their studies in India or in foreign countries and to award prizes to students for proficiency in any subject or language; (v) to render substantial financial aid to any existing hospital or educational institutions; (vi) to give substantial donations to any relief fund by way of charity. The Hon'ble Court held that mere repetition of all the object clauses would not be sufficient compliance. 13.5 According to the ld. AR, in the assessee's case, the purpose of construction of buildings to conduct the charitable activity of the assessee have been clearly spelt out. The CIT(A) ought to have accepted the assessee's reliance on the decisions of the Delhi High Court in the cases of DIT(Exemption) v. Daulat Ram Education Society (278 ITR 260), DIT v. Mitsui And Co. Environmental Trust (303 ITR 111), Bharat Krishak Samaj v. DDIT(Exemption) (306 ITR 153), DIT(Exemption) v. Mamta Health Institute For Mother and Children (293 ITR 380) and CIT v. Hotel And Restaurant Association (26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Maligal Merchant v. ADIT Others in ITA Nos.1524 2312 to 2320/Mds/2004 dated 7.6.2005 and held as under: Taking into consideration the entire conspectus of the facts, we are of the opinion that it is sine quo non for enabling the benefit of section 11(2) that trust must specify its purposes while making application for exemption in Form No.10. Benefit of section 11(2) cannot be extended if trust only repeats the object for which it is created. Ordinarily assessee is required to spend 75% of the income. However, if for some specified purpose it feels that such income be accumulated to achieve some objective of the trust, it should specify those objectives and purposes clearly in the application. De hors such specification, benefit under section 11(2) cannot be availed of. We have perused the reasoning stated in the impugned order. We are inclined to agree with the view taken by the Revenue Authorities. As such, we uphold the impugned order. Further he submitted that the said order of the Tribunal to be followed and the issue to be decided in favour of the Revenue. 15. We have heard both the sides and perused the material on record. The lower authorities denied the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne specific object. There can be setting apart and accumulation of income for more objects than one but whatever objects or purposes might be, assessee must specify in notice concrete nature of purposes for which accumulation is being made. Plurality of the purposes for accumulation may not be precluded but it must depend on the exact and precise purposes for which the accumulation is intended for the statutory period of ten years. The generating of the objects of the trust cannot take the place of specificity of the need for accumulation. 17. Considering the above position of law, we are inclined to uphold the order of the CIT(Appeals) on this issue. 18. Further, the CIT(Appeals) enhanced the assessment on the assessee because the activities carried on by the assessee is in commercial manner and the assessee is not entitled for exemption u/s.11 of the Act, in toto. 19. The issue before us is whether, on the facts and circumstances of the case and having regard to the terms of the Trust Deed, it can be said that the activities carried on by the assessee in the form of running of working women's hostel, women's service center and canteen were itself held under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under trust wholly for charitable or religious purposes, to the extent to which such income is applied to such purposes in India. There is no exhaustive definition of the words property held under trust in the Act; however, sub-section (4) says that for the purposes of section 11, the words Property held under trust includes a business undertaking so held . Subsection (4A) as it stands amended by the Finance (No. 2) Act, 1991, with effect from April 1, 1992, is in the following terms: (4A) Sub-section (1) or sub-section (2) or subsection (3) or sub-section (3A) shall not apply in relation to any income of a trust or an institution, being profits and gains of business, unless the business is incidental to the attainment of the objectives of the trust or, as the case may be, institution, and separate books of account are maintained by such trust or institution in respect of such business. 21. Thus, if a property is held under trust, and such property is a business, the case would fall u/s. 11(4) and not u/s. 11(4A) of the Act. Section 11(4A) of the Act would apply only to a case where the business is not held under trust. Thus, there is difference between property or bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not business held under trust. Section 11(1) of the Act confers exemption from tax only where the property is itself held under trust or other legal obligation; it does not apply to cases where a trust or legal obligation is not created on any property but only the income derived for a charitable or religious purpose. Surplus funds of a trust, which was claimed to be exempt on the footing that it was property held under trust within the meaning of sec. 11(1) of the Act, was not property held under trust since the property from which the surplus was generated was itself not held under trust. In other words, merely carrying on business for and on behalf of the trust and applying the profits of the same for the object of the trust does not entitle for exemption u/s. 11(4) of the Act unless the business is incidental to the attainment of the objects of the trust. 23. We now proceed to consider the question whether the said activities carried on by the assessee were incidental to the attainment of the objects of the trust. We fail to see any connection between the activities relating to running of working women's hostel, women's service center and canteen carried on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of working women's hostel, women's service center and canteen is held not to constitute a business held under trust, but only as a business carried on by or on behalf of the trust, so long as the profits generated by it are applied for the charitable objects of the trust, the condition imposed u/s. 11(4A) of the Act should be held to be satisfied, entitling the trust to the tax exemption. 27. In our opinion, these observations have to be understood in the light of the facts before the Supreme Court in the case of Thanthi Trust (supra), wherein the trust carried on the business of a newspaper and that business itself was held under trust. The charitable object of the trust was the imparting of education which falls u/s. 2(15) of the Act. The newspaper business was incidental to the attainment of the object of the trust, namely that of imparting education and the profits of the newspaper business are utilized by the trust for achieving the object of imparting education. In this case, there is no such nexus between the activities carried on and the objects of the assessee that can constitute an activity incidental to the attainment of the objects, namely, to promote ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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